(Bloomberg) -- The head of Japan’s largest labor union is calling for Prime Minister Shigeru Ishiba’s government to accelerate efforts to boost wages, especially for workers at small firms, as they seek to achieve stronger results for next year’s pay negotiations.
“We want the government to create an environment that leads to pay gains,” said Tomoko Yoshino, the chair of Rengo, in an interview with Bloomberg. She said on Tuesday that a key law should be revised to help small firms pass on costs, and subsidies should be boosted to help them address severe labor shortages.
Yoshino’s comments come as unions gear up for next spring’s pay negotiations — results that are also closely watched by the central bank. The Bank of Japan raised interest rates for the first time in 17 years in March a matter of days after the initial results of Rengo pay deals for this year pointed to the biggest gain in more than three decades.
For the upcoming year, Rengo is again targeting at least a 5% wage hike across all sectors and additionally a 6% increase for smaller firms. This year it managed gains of 5.1% overall, and a 4.45% raise for firms with fewer than 300 employees. The gap between small and large companies widened, Yoshino said.
The union chief, representing about seven million workers, was keen to emphasize that wage gains have to spread more to workers at smaller firms.
“Small and medium-sized businesses, especially in rural areas, are key,” said Yoshino. In Japan, 99.7% of over four million firms are small businesses, employing about 70% of the workforce, according to government data. “The economy won’t grow unless the overall wage level rises,” she added.
Japan’s Subcontract Act is one of the key areas for progress, according to Yoshino. The law, which had its last major update two decades ago, has been criticized for limiting small firms’ ability to pass costs onto corporate customers due to various loopholes. Prime Minister Ishiba said earlier this month that he will aim to revise the law at the earliest possible opportunity.
“Businesses need to be able to pass rising costs through the entire supply chain,” the union leader said.
Yoshino also hopes the government will offer subsidies to help small businesses invest in digitalization and other infrastructure to improve their working conditions, amid a severe labor shortage. The latest draft of the upcoming economic measures suggests that they will likely include such support, though the amounts involved are yet to be specified.
The central bank will keep a close eye on wage negotiations, as authorities attempt to judge where Japan stands on its path toward a virtuous cycle of pay and price increases, a key condition for further rate hikes.
BOJ Governor Kazuo Ueda said last month that it would be good in a general sense for the bank’s goals if wage increases are about the same as they were this year, while noting that the bank won’t base its decision solely on the outcome of the upcoming annual wage talks.
Yoshino refrained from commenting on BOJ policy, while she said the union will aim for results that outpace this year’s outcome.
Despite this year’s strong wage gains, Japan’s real wages have remained largely stagnant due to persistently high inflation. Real wages across the country have only risen in two months over the last year, while the nation’s key price gauge has stayed at or above the BOJ’s 2% target for 30 consecutive months. Yoshino said that continued 5% wage increases could eventually help real wages rise, underscoring the importance of sustained wage and price growth.
Ishiba has also pledged to achieve a minimum wage of ¥1,500 ($9.68) per hour in the 2020s, bringing forward the already ambitious goal proposed by his predecessor Fumio Kishida.
Yoshino said that she wants accountability over why the target was set at that level, given that the goal will require 7.3% annual growth. At the same time, the union head said ¥1,500 is just a passing point. Rengo aims to ra
ise the minimum wage to ¥1,900 per hour by 2035.
Rengo has been advocating for wage related policies alongside the opposition Constitutional Democratic Party, as well as the Democratic Party for the People, which has become a key player in parliament after Ishiba’s ruling coalition lost its parliamentary majority. Yoshino said that she will continue to urge these opposition parties to create an environment for wage growth.
“We wanted a sense of urgency to politics,” Yoshino said. “We have some hope that’ll emerge given the government has lost its majority.”
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